Review of Historical and Temporary Challenges Facing Small and Medium Enterprises in Yemen

International Journal of Trend in Scientific Research and Development (IJTSRD)

Volume 4 Issue 3, April 2020 Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470

@ IJTSRD | Unique Paper ID – IJTSRD30686 | Volume – 4 | Issue – 3 | March-April 2020 Page 752

Review of Historical and Temporary Challenges

Facing Small and Medium Enterprises in Yemen

Mugaahed Abdu Kaid Saleh1, Dr. Manjunath K. R.2

1Research Scholar, 2Assistant Professor and Research Supervisor, 1,2Department of Management Studies and Research, Kuvempu University, Shimoga, Karnataka, India

ABSTRACT

This paper aims at shedding the light on the obstacles and challenges that

hamper the performance and contribution of small and medium

enterprises in Yemen and their contribution to the economic development.

It is based on an in-depth review of international organizations reports

about Yemen and the development of the business sector, reports on the

performance of small enterprises and business environment during the

current condition. The challenges that face small businesses in Yemen are

serious and they need years if not decades to be contained from

hampering the business performance and the contribution to GDP. These

challenges are grouped into two sets, the first set is concerned about the

historical challenges that had been facing SMEs for long time, and the other

set is concerned about the emerging challenges that came to affect the

small business sector in recent year with the emergence of the violent

conflict and political instability

KEYWORDS: Yemen, SMEs, challenges, business, development

How to cite this paper: Mugaahed Abdu

Kaid Saleh | Dr. Manjunath K. R. "Review

of Historical and Temporary Challenges

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Yemen" Published in

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INTRODUCTION

The sustainable economic growth of nations significantly

accounts for small and medium enterprises as a driving force

for development (Drucker, 1984). They play a key role in

restructuring economies and economic revival (United

Nations.1999). They form a crucial base of economies

especially in least developing countries where alleviating

poverty raises the need to increase the level of income

among individuals (Smallbone, Welter, Isakova, & Slonimski,

2017). Their activities vary among all sectors in developing

countries (UNIDO, 2016), their qualitative characteristics

reflect their difficult operating conditions (Smallbone, et. al.

2001). Therefore, studying the performance and challenges

of SMEs interest academics, policy makers, practitioners and

authors (OECD, 2004), to support SMEs thrive and reach

Sustainable Development Goals (SDGs), which highly

depends on a healthy competition (OECD, 2017). Challenges

and constraints in respect of accessing finance (Ardic,

Mylenko, & Saltane, 2011), managerial skills, inadequate

infrastructure (Agwu, & Emeti, 2014), or the competition

from the informal sector, they all affect SMEs activities and

performance (ILO, 2015; OECD ,2019; Cusmano, Koreen &

Pissareva, 2018; Teima, et. al, 2010). However, research

indicates that despite the challenges and difficulties that the

sector of SMEs faces, it still plays a remarkable role towards

the economic development through job creation and

contribution to national GDP (Das, 2017; Saleh, & Ndubisi,

2006; Smallbone, & Welter, 2001; Kongolo, 2010; Abor, &

Quartey, 2010).

Understanding the issues and difficulties of small businesses

is the starting point towards supporting and promoting their

structural transformation (UNCTAD, 2018; OECD, 2017),

their need for approaches to address such issues is well

recognized but still insufficient among least developing

countries (Riba, 2001). Transitioning an economy requires

microeconomic and macroeconomic processes, among other

factors, for strengthening the role of small and medium

enterprises innovation (WIPO, 2008).

Yemen is the poorest country in the Middle East reeling from

poverty, illiteracy, unemployment with a fragmented

economy and a geographically skewed infrastructure.

MSMEs in Yemen play a vital role because they account for

around 97% of the business sector, 290,000 enterprises that

employ less than 25 employees, with workforce of around

600,000 workers, lacking the opportunities that large

enterprises have to grow and expand in the market because

the business environment is unfavorable to their

development (Assaf, 2013).

The conflict in Yemen continues to drastically deteriorate the

business climate, infrastructure and disrupt the service

delivery in all major sectors, leading to higher inflation,

economic uncertainty and instability, negative GDP, and

weakness of the Yemeni Rial (YER), and that harmed the

sector of SMEs that around 20% of enterprises had to close

since the beginning of the violent conflict in 2015 (World

IJTSRD30686

International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470


Bank, 2019; UNOCHA, 2015; ILO, 2018). Enterprises in

Yemen engage in many activities mainly agriculture,

manufacturing, fisheries, services, oil and gas as well as

tourism (World Bank, 2014), yet the their challenges are

many as Yemen was ranked 187 out of 190 countries in the

ease of doing business (World Bank, 2018c).

Economic development in Yemeni SMEs sector is now

needed more than ever to observe transitioning in the

economy because entrepreneurship in Yemen is considered

a helping hand to the economy that had been reeling from

political instability, and poverty for years which requires a

herculean conviction to survive such conditions, which

means entrepreneurship in Yemen is directed to fulfill the

crucial needs more than being the choice of business owners,

as well as the best bet for overcoming the current social

challenges in Yemen (Hariharan, 2016).

This paper presents a background about the challenges and

obstacles that are faced by small businesses in Yemen, which

are grouped into two, the first group are the historical

challenges that accompany small business in all stages, and

the other group are the emerging challenges that got active

and severe during the recent conflict.

Methodology

The paper is a review paper in nature. It adopts the

descriptive research method to investigate the challenges

that have been undermining the performance and growth of

SMEs in Yemen in order to obtain a better understanding of

the nature of business environment and its challenges in

respect of small and medium enterprises and

entrepreneurial activities.

Research Problem and question

Regardless of the importance of the SMEs sectors to the

development of economies in developed and developing

countries, the business environment in which they function

plays a key role in facilitating or undermining the operations

of small and medium enterprises. The business environment

differs from country to another in respect of enterprising

and entrepreneurial activities. Yemen is one of the least

developed countries with an instable economic environment,

this raise the question “What are the challenges that face

SMEs in Yemen?”.

Objectives

The challenges that face enterprises differs due to factors

such as the business and economic environment, policies

and regulations. Therefore the objective of this paper is to

explore the challenges and obstacles that face small and

medium enterprises in Yemen. More particularly, the

business environment in Yemen has witnessed too many

changes during the last ten years due to the political

instability that began in Yemen in 2011, therefore, the aim is

to identify the historical and temporary challenges that

hinder the performance of small and medium enterprises in

Yemen.

Data source and scope

The research relied on secondary data and resources in

order to present a sufficient overview about the obstacles

and challenges that hamper the performance of small and

medium enterprises in Yemen. The scope of the focus of this

study encompasses the secondary data available during the

last ten years 2000-2019.

Background

Yemen is the least developed country among countries in the

Middle East. A large portion of its economic activities are

under the category of small business, majority of them are in

the informal sector. There are around 350,000 enterprises in

Yemen employing around half a million workers (SFD,

2000). Until now, there is no comprehensive database about

small and medium enterprises and Yemen along with their

activities, except a Baseline Survey conducted in 2000 by

Social Fund for Development.

The universal definition of SMEs in Yemen is still missing

due to the lack of attention paid by the government towards

this sector. The national strategy for SMEs development

defined small enterprises “any activity earning income in

industry, trade or service”. The SMEs survey conducted in

2000 defined the “small and smaller” enterprises as

enterprises having 50 workers and less, as well as market

50% of their products (Alnedhari, 2009). The world Bank

and United Nations Development Program considered

defining SMEs in Yemen in their report that up to four

workers form a micro enterprise, up to fifty workers form a

small sized enterprises, while a medium enterprises is

formed by more than fifty workers and less than

100(Aliriani, 2013). This definition was adopted for research

purposes and not officially by the government.

Yemen has not yet defined a specific ministry for small and

medium enterprises in the country which makes the sector

lagging behind in respect of control and supervision,

However an administration called General Administration of

small Industries under the control of Ministry of Industry

and Trade (MOIT) to supervise industrial enterprises (Al-

Attas, 2017).

Due to the current instability of the economy in Yemen, some

complex challenges faced by the business sector need to be

understood within the social and economic context of the

country. Despite these challenges and others too, the

business sector still strives to sustain and grow to make a

remarkable survival and growth under the current

circumstances (World Bank, 2012). The business sector

showed resilience during the economic instability to

somehow replace the absent government services, proving

basic commodities and livelihood (SCSS, 2019). This implies

the need for the business sector recovery and of course the

recovery of the whole economy. Paying attention to small

business sector is need now more than ever as the small

business sector plays a key role in the economic

development in Yemen.

Historical / Structural challenges facing SMEs

Access to finance

Obtaining the required funds is challenging for small

enterprises in Yemen as in any other developing country, it

hampers the enterprises developments (Almotamar, 2007).

The beginning of microfinance in Yemen us traced back to a

program established in 1999 by United Nations

Development Program (UNDP) called “MicroStart” towards

building the capacity of local organizations to initiate the

activities of micro finance (UNCDF, 1997).

However, The banking sector in Yemen is young, but its role

in financing small enterprises is still traditional and did not

expand in serving all segment of society. Urban activities

receive more attention from microfinance institutions in



Yemen than rural activities. MFIs are not able to diversify

their products to small enterprises borrowers due to the

reliance on limited resources, economic imbalance as well as

the current economic instability and the fragile situation

caused by the current conflict (Kazam, 2017; Al-Lai, 2014;

Cetin, Hoster, &Kathmann, 2007).

Enterprise can have access to loans with 20% interest rate in

commercial banks, or with Islamic banks through providing

the necessary assurances which becomes a burden on the

enterprises (Algomhoriah, 2011). However, microfinance

institutions are currently reluctant to provide financial

services to small enterprises borrowers in some cases and

requesting extra collateral in other cases (World Bank,

2018a).

Skilled Workforce

Human resource development in small businesses in Yemen

is challenging since training and development is lower in

small businesses than in large businesses (OECD, 2010).

Yemen’s labour market is considered unorganized due to its

reliance on agriculture, more than 70% of labours work in

the unorganized labour market (World Bank, 2010a), which

belongs to the informal sector. More than half of workforce

in Yemen (55.6 %) is in the service sector, agriculture has

less than a third of Yemen workforce (29.2%), around 22.7%

in the trade sector, while 14.5% in industry and 12.7% in

public administration (ILO, 2015).

Since the 70s of the last century, small and medium

enterprises had been growing to employ 60% of workforce

worldwide (Aljazeerah, 2010d), 47.5% of workforce in the

USA (SBA, 2018), 66.8% in The European Union (Kraemer-

Eis, Gvetadze, Lang, Torfs, 2017)., 40% in India (Goyal,

2013)., but Yemen was late to pay the due attention to small

businesses in order to contribute to the economic

development which makes the small business sector

informal due to the unavailability of real numbers and

evidence of contribution to the real GDP of Yemen

(Alhaddad, 2010). 68.6% of work force in Yemen have

primary education, while 23.0% have secondary education,

and only 7.9% have tertiary education (ILO, 2015).

The rising generation in Yemen lack the necessary cognitive

skills to indulge in the cognitive society (UNDP, 2011). Low

skills is a major issue for staffing according to 42% of the

enterprises in Yemen as well as the high turnover of staff

(Al-Maqaleh, 2012). Yemen was ranked 160 in human

development index in 2013 (UNDP, 2013), and 178 in 2018

(UNDP, 2018) which put Yemen in the category of “Low

human development” countries due to the political

instability that started in 2011(UNDP, 2013). The chart

below illustrates the smooth growth of the human

development index since the 1990s until the beginning of the

political instability in 2014 when it began to decline.

Figure1: Human Development Index in Yemen 1990-2017

Obtaining information

The proper use the information is essential and significantly

related to communication and decision making in SMEs

(Bunyasi, Bwisa, Namusonge, 2014) but enterprises get

affected by the lack of access to information and its security

and misinterpretations (Mutula, 2009; Alzeyod, 2010). The

success of small businesses depends on their ability to

acquire, maintain, interpret, evaluate and properly use

information (Mutula, 2009; Kassim, et. al. 2016).

Information affects the innovation capabilities of enterprises

( Imran, et. al., 2019), also lacking the information hampers

their contribution in the economic development (Arab

Monetary Fund, 2017 ; Mutula, 2009). Research is needed to

support SMEs performance in the economy (Pachouri, &

Sharma, 2016), and providing information about SMEs and

risk allocation creates balance in the market among lenders

and borrowers and increases the competition (Arab

Monetary Fund, 2013).

Yemen lacks the development of finance, microfinance and

banking legislations which requires obtaining more

information about small and medium enterprises as well as

establishing mechanisms to encourage and ensure the

growth of these enterprises, and the removal of legislative

obstacles to develop financial and knowledge resources for

SMEs (Arab Monetary Fund, 2013), because the small

business sector in Yemen is still a young growing sector

(Cetin, et. al. 2007; Al-Iriani, 2002) where the main internal

weakness of microfinance activities is the absence of proper

control and oversight, along with the insufficient technology,

skilled workforce and funds and information and its proper

use would be of help in SMEs prosperity (Cetin, et. al. 2007).

Innovation in enterprises would not occur through isolating

the enterprise from the external environment, but through

interaction with external parties domestically and

internationally, which requires strengthening the knowledge

aspect in these (Arab Monetary Fund, 2013).

Weakness of laws

After the unification of Yemen in 1990, political and

sectarian conflicts raised, the government governance was

extremely limited, rule of law institutions were ineffective

and moreover were untrusted, therefore, traditions and

tribal governance has been associated with government

effort to restore stability and regulate conflicts(Al-Dawsari,

2012).

Regardless of the fact that the economy of Yemen consists

mainly of small and medium enterprises, yet there is no

specific law issued and dedicated to small and medium

enterprises (Alnedhari, 2009). Although there was a

microfinance institutions Law issued in 2009 to regulate

their establishments and activities to fund small enterprises,

but the law to regulate the activities of small and medium

enterprises is still absent in the Yemeni business

environment.

The weakness of government policies to regulate the sector

of small businesses has been a major challenge to the growth

of small businesses (Musid, 2013). Providing guarantees and

assurance by small business is another challenge that

hinders their ability to access to the required funds, due to

the absence of guarantee fund for private loans for the youth

(Althawrah, 2013b). Such hindrance in implementing the

regulatory reform in Yemen can be evident in the ranks of

Yemen in the Doing Business indicators (World Bank, 2015).



indicators Yemen lowest rank among Arab countries

Highest rank among Arab

countries

rank country rank country

Ease of doing business 187 190 Somalia 11 U.A.E.

Starting a business 175 188 Somalia 25 U.A.E.

Dealing with construction permits 186 186 Yemen, Somalia, Libya and Syria 5 U.A.E.

Getting electricity 187 187 Yemen, Somalia, South Sudan 1 U.A.E.

Registering property 81 187 Libya. 7 U.A.E.

Getting credit 186 186 Yemen, Somalia, Libya and Iraq 44 U.A.E.

Protecting investors 132 190 Somalia 7 Saudi Arabia

Paying taxes 83 190 Somalia 2 U.A.E.

Trading across borders 189 189 Yemen 62 Morocco

Enforcing contracts 139 161 Syria 9 U.A.E.

Resolving insolvency 157 168 Somalia 48 Djibouti

Table 1: Doing Business indicators in Yemen among Arab countries.

Resource: World Bank: Doing Business, 2019

It is believed that tribes and tribal governance and system are an impediment to the development of state (Al-Dawsari, 2012),

the main weakness that the country experiences is not in laws and regulations, but it lies in the governance and regulatory

enforcement. This weakness is a result of the lack of judiciary’s independence (World Bank, 2015). Tribal law has its roots for

centuries among Yemenis, it succeeds in solving conflicts in old and modern history of Yemen (Al-Dawsari, 2012). According to

Friends of Yemen,1 corruption and vulnerabilities such as poor infrastructure, low salaries, strong executive control,

institutional opacity as well as weak procedure due to the lack of knowledge or incentives are all a result of the weaknesses in

the justice, security sectors (Friends of Yemen, 2010).

Competition

Despite the fact that monopoly is prohibited in Islam due to its effects on the Islamic society and the economy (Aljunaidy,

2010), it had existed in Yemen since the old era, like the monopoly of coffee trade during the Ottoman Empire (Al-rajwi, 2005).

Even though the government of Yemen issued law No. (19) in 1999 to promote competition and prevent monopoly and

commercial fraud, the economic activities are not performed according to the law accurately due to the interference of the

tribal relations and connections that impact the decision making positions(Aljazeerah, 2008).

Yemen applied for joining World Trade Organization (WTO) April 2000, and continued negotiations until 2013 when it was

approved as the 160th member of WTO (WTO, 2014). As negotiation procedures, the markets were open towards foreign trade,

lacking the strategic vision to develop the industrial sector and providing the required protection (Aljazeerah, 2013).

Yemen relies almost totally on imports, which is run and managed completely by the private sector (World Bank, 2018b).

Therefore, monopoly is dominated by players in the business sector to make profit using the economic fragile situation in

Yemen (Althawrah, 2014; Alsharabi, 2013). The weakness of the local market is majorly caused by the absence of an official

policy to support and protect national production, consumption awareness and the weak enforcement of standards and

metrology (YPAgency, 2018; Algomhoriah, 2008). The consumers interest in foreign imported products over the local products

is due to “the better quality in imported products” ( Algomhoriah, 2008). Monopoly is encourages by the dropout in the public

administrative system, weak infrastructure, and the difficulty to access funds resources (Aljazeerah, 2010a).

Market dumping

Dumping markets affected the economic sectors, and it continued until today as the industrial sector is lagging behind in

competing with the imported products due to the lack of incentives(Althawrah, 2013c; Alaraby, 2016a) which makes

consumers reluctant to be interested in local products and tend to prefer imported products(Aljazeerah, 2010).

The weakness in law enforcement, poor management procedures, low awareness of consumers, lack of strict policies as well as

poverty among the public, all contribute to the increase of interest in the low priced imported products which impact the

national industrial sector(Alaraby. 2015). The weakness of marketing policies, the cost and quality of national products as well

as the unregulated way of opening markets towards foreign trade minimize the ability of local products to compete and book

their share in the national market, let alone the international market, especially during the political unrest and fragile situation

of the economy (Algomhoriah, 2008; Alaraby, 2017; Aljazeerah, 2010b; Aljazeerah, 2010c; Alhimyari, 2014; Althawrah, 2013a).

Marketing policies

A manifested inadequacy by industrial enterprises to adopt marketing practices hindered their consistency in the market which

weakened their competitiveness (Alqadasi, 2008). Lacking marketing skills contributes to the failure of businesses which

implies a significant association between the need for marketing skills and the success of business (Cant, 2012; Van Scheers,

2011). In today’s world, innovative marketing exists in small and medium enterprises as a tool to operate in a competitive

1 Friends of Yemen Group was established in 2011 by a group of countries supporting Yemen during the conflict, For more

details, https://www.gov.uk/government/news/friends-of-yemen-q-a.



market circumstances (O'Dwyer, Gilmore, Carson, 2009). Marketing decision and competencies are carried by SMEs through

building on the existing competencies and developing the existing related knowledge (Carson, & Gilmore, 2000).

Small business accounts for around 95% of businesses in Yemen, despite the fact that SMEs dominate the industrial sector in

Yemen, their contribution to the economic growth is not as expected, due to its backwardness in many factors mainly

marketing factors(Alqadasi, 2008). SMEs are not included in the almost all marketing forums held in the country, despite the

importance of marketing to SMEs products (Algomhoriah, 2017b).

Marketing in small businesses is improvised and lacking the strategic vision, which makes the business sectors move forward

less than expected (Algomhoriah, 2017a). The lack of awareness makes SMEs mix between sales and marketing regardless of

the difference between the two. The existence of the great idea and transferring it into small enterprises has no value without

the marketing activity for this enterprise. The enterprises ability to market their products will promote their ability to grow in

the market (Alqadasi, 2008). SMEs in Yemen are in need for marketing forum to build their capacity in respect of marketing as

well as learning the trends in marketing on how to meet the needs of customers and grow their share in the market(Yemen

Economist, 2009).

Infrastructure

Poor infrastructure is one of the major challenges to small businesses whether it is a poor quality broadband or poor local

roads and transport, which means deteriorating infrastructure can affect the business performance and profitability of small

and medium enterprises(Kelly, 2016; Obokoh, & Goldman, 2016).

The condition of infrastructure of Yemen is relatively underdeveloped, which implies: Poor transportation means, lack of

power resources as electricity reaches only 30 percent of the population, lack of information, low purchasing power, low

demands, water shortage(World Bank, 2000a; Igmena, 2009; General Investment Authority, 2006).

Telecommunications services are unreliable, and often interrupted for security reasons, costly and unreliable internet from one

provider. Transportation is a major obstacle to SMEs in Yemen as Yemen has around 71,300 km of roads, only 7,700km of them

are paved roads, there is no railway system in Yemen which makes the obstacle crucial towards enterprises that depends on

transportation such as agriculture enterprises (Nicaragua, 2019; Encyclopedia of the Nations, 2007).

Corruption

Usually, the informal payments (Bribery) is the most common way of corruption practices that affect SMEs (Gbetnkom, 2012).

Administrative dropout or corruption has been a characteristic of business environment in least developing countries where

facilitation payments or bribery is used to solve or foster bureaucratic and administrative activities, which becomes a major

investment barrier (Rune, 2011). Mediating the association between private wealth and the public power is a duty of

governments, and corruption is the result of any failure in that duty leading to payments for getting routine services(Rose-

Ackerman, 2005), causing 1 trillion dollars to be paid in bribes every year in the world(World Bank Institute, 2004).

The literature focuses more on the effect of administrative dropout on large enterprises than its effect on micro and small

enterprises(UNIDO, & UNODC, 2007), while SMEs suffer more from such effect due to their liability to the size and their limited

resources which makes them accept the dropout as a national factor in doing business, especially in a lease developing country

like Yemen(Rune, 2011).

Yemen has always been among the tale countries in the Corruption Perceptions Index (CPI) by Transparency International

Organization (Transparency International, 2018), as illustrated in the table below.

Country rank 2018 Index 2017 Index 2016 Index 2015 Index

Rank Index Rank Index Rank Index Rank Index

Yemen 176 14 175 16 170 14 154 18

Syria 178 13 178 14 173 13 154 18

U. A. E. 23 70 21 71 24 66 23 70

Oman 53 52 68 44 64 45 60 48

Saudi Arabia 58 49 57 49 62 46 48 52

Table [2]: Corruption Perceptions Index of Yemen and neighboring countries

Source: Transparency International, (2018). Corruption Perceptions Index 2018

The literature also identified that corruption affects the ability of small enterprises to set up and expand business more than

other challenges (UNIDO,& UNODC,2007). They sometimes do not have the capacity to identify the legal practices from the

corrupt ones, due to the grey areas and the difference in customs and practices in regions and countries, they deal with corrupt

practices to survive competitions, establishing their share in the market, as well as maximizing the profit (UNIDO,& UNODC,

2012).



Temporary challenges facing SMEs

Political instability and war events

Political instability has been reported as the most common

problem for medium and large enterprises in Yemen(World

Bank, 2013a). Yemen as an impoverished Arab country has

always been unstable politically(The week, 2015), it

experienced political unrest since its unification in 1990, due

to its strong tribal social structure, sparsely settled

population, and geographic isolation it has been difficult to

govern centrally(Sharp, 2010). Political change in Yemen

since 1990 does not mainly reflect democratic transition,

due to weakness of governments and fragmented political

opposition (Phillips, 2007). The unstable form of

government got worse in Yemen after the Arab Spring

Revolutions that started in 2011 leading to the current

lawlessness and fragile situation(BBC, 2015; Aljazeera

Studies Center, 2011) it escalated to a multipolar conflict,

having regional and local components (Chatham House,

2015).

The violent conflict in Yemen started in 2014 and resulted in

devising the country into two splits with two governing

authorities while only one has a legitimate recognition

(World Bank, 2019b). The financial sector was affected due

to the split of the monetary authority which affected the

ability of small enterprises to access to funds (Kedem, 2017).

Access to Electricity

Yemen had always been characterized with a wide spread of

energy poverty by having severely undersupplied electricity

or no access to it (El-Katiri, & Fattouh, 2011). The frequent

supply cuts happen sometimes due to attacks on power lines

or the absence of fuel at stations which caused a big effect on

the life of individuals and small businesses (Al- Muslimi,

2014). Currently, large parts of Yemen have no access to

electricity due to the active conflict and the non-availability

of electric power services in those areas (Guerrini, 2016;

Rawea, & Urooj, 2018).

Solar energy technologies are usually adopted for

environment benefits, due to providing safe, renewable and

clean energy sources (Gunerhan, Hepbasli, & Giresunlu,

2008), but in Yemen it was the only good solution to adopt

during the complete absence of electric power sources

(Rawea, & Urooj, 2018), which led to the growth of the solar

power business in Yemen during the current conflict (Mahdi,

2018).

Crime, theft and disorder

The authority and power were shattered with the new

chapter of violence and spread the lawlessness and chaos in

the country affecting the rule of law(Alaraby, 2016b), which

put the country in crisis, the economy is now shattered,

business are damaged, affected, or in loss(SEMC, 2016).

The weak governance in Yemen prior the conflict was caused

by the ineffective enforcement of the rule of law(United

Nations, 2011), the law was not applied systematically or

equally(UNDP, 2005). In conjunction with the conflict events

that began in 2014, individuals and businesses are found

victims to theft, crimes and disorder(Alaraby, 2019) due to

the lawlessness status resulted from the fragile political

situation. In some part of Yemen, the crime rate increased to

60% during the conflict time 2014-2019(Alarabyah, 2017).

The spread of lawlessness decreased the feeling of being

protected by the legal system, crimes went unpunished

(Oxfam, (2016), business and property looting and theft

increased as well, even health care units were exposed to

crime instances (Moodley, 2016). Yemen had been reeling

from poverty, lack of educational and health services and

deprivation of basic needs, governance efforts have been in

disarray due to the conflict, economic decline and the

political uncertainty (UNDP, 2019).

Loss and damage

The violent conflict in Yemen is causing damage to the

infrastructure and economy affecting all portions of the

society as well as small businesses such as buildings,

equipment and other assets. Around 5% of small business

were completely destroyed during the war events and

conflicts strikes, and around 22% experienced major

physical and economic assets damage, minor damages

affected half of small businesses in Yemen. while 97% of

businesses experience economic loss such as revenue loss,

workforce lay off, and customer decline up to 60% of

customers, the service sector suffered more effect of

customer base loss (ILO, 2016; 2018), leading to the closure

of some businesses (SMEPS, 2015).

Relocating business

The drastic drop in sales among small businesses, the

expectations of continuous risk along with the conflict, as

well as the continuous interruption of crucial services such

as electricity and customer base loss, high tax and regulatory

fees became a heavy burden on small businesses and the

private sector in general. Around 20% of businesses had to

relocate their business due to the previous factors during the

current conflict in Yemen (World Bank, 2019a). Cities with

less conflict attracts the business and commercial activities

which encouraged business owners to relocate their

businesses to the better stable cities, to find better

infrastructure and key services(Baron, 2018). Such moving

and relocating business puts enterprises into a large one-

shot cost, as well as performance effect due to the distance

relocation and the customer base loss (Knoben, &

Oerlemans, 2005).

The lack of security and the spread of lawlessness during the

conflict along with losing the customer base as well as the

decline in general purchasing power lead to revenue loss in

small business and then the consideration of business

relocating to other cities as a solution (Azaki, 2018).

The absence of a specific SMEs authority

Usually, in least developing countries (LCDs), the regulating

policies and programs of Small and medium enterprises fall

under the responsibility of their ministries, and in other

cases they overlap between two or more government

ministries (UNCTAD, 2001). There is no specific ministry for

small and medium enterprises in Yemen, which contributed

to the lack of support towards small businesses. However,

there an administration in the Ministry of Industry and

Trade (MOIT) called The General Administration of small

Industries dedicated to supervising the small industrial

enterprises, according to which, the enterprises have been

defined in 2009 through a regulation based on the number of

employees and the capital as well(Al-Attas, 2017).


@ IJTSRD | Unique Paper ID – IJTSRD30686 | Volume – 4 | Issue – 3 | March-April 2020 58

Social Fund for Development (SFD) in Yemen is an

organization delivers support to small businesses, it was

established in 1997, supported by the international

community, particularly the World Bank. SFD has been an

effective development institution in Yemen performing many

main development programs (SFD, 2017) aiming to combat

poverty in rural and urban communities in Yemen (Al-Iryani,

De Janvry, & Sadoulet, 2013; 2015) which leads to reducing

the poor’s vulnerability and enhancing their access to basic

services (SFD, 2017), through playing a unique role to help

alleviate the major social issues in Yemen (Struben, 2004).

SFD established the Small and Micro Enterprise Service

(SMEPS) in 2005 as a subsidiary focusing on developmental

projects aiming to create more jobs through pursuing

creative strategies for small businesses development, to

better respond to the conflict affecting small business,

through providing interventions for facilitating and building

technical and economic capacities to revive the sector of

small business in Yemen (World Bank, 2012; SMEPS, 2016;

Ghanem, 2018).

Small businesses in Yemen show low and limited

productivity and innovation among other neighboring

countries (World Bank, 2016; 2013b). According to the

World Bank, only 3% of enterprises possess ISO, 9% of

enterprises provided training to their employees, 13% of the

sampled enterprises got license registration, 22% had new

product line, 33% of the enterprises updated their current

production lines(World Bank, 2011).

The growth of informal sector

Normally, the informal business sector aims at survival

different from the formal small businesses that aims for

growth and expand (Ligthelm, 2013). Research indicated

that large businesses survive and grow while small business

have to face many challenges and obstacles in order to

survive (Sasidharan, & Rajesh Raj, 2014), the growth of

businesses in the informal sector is faster than the business

in the formal sector (Abdallah, 2017), while other research

confirm the positive growth of business in the formal sector

(Schoonjans, Van Cauwenberge, & Vander Bauwhede, 2013).

Informal enterprises are known for their inability to adopt

the basic techniques to grow and expand through formal

education and training that grant them the ability to become

modern to grow and expand (Aftab, & Rahim, 1989).

The informal sector in Yemen grew due to unnecessary

regulations and licensing, enforceable contracts, predictable

taxation or tariff protection and the lack of dependable

jurisprudence (World Bank, 2000b). It is considered big and

it contributes around 27% of GDP in Yemen, which is a result

of the insufficient infrastructure (World Bank, 2010b).

Yemen workforce is more present in the informal sector

73.2%, around 30% of the workforce work in the agriculture

sector, and 23% work in the trade sector(ILO, 2015), this

spread is due to the lack of education and female

participation (World Bank, 2015), as well as neglecting

economic sectors for the favor of oil sector (Salisbury, 2011).

Conclusion

The lack of information and comprehensive database about

small business sector, as well as the lack of effort towards it

form a challenge towards their performance, their guidance

or supervision, as well as performing a study in their regard,

which in the end affects the economic growth and

development of the sector and the country as well(Alasraj,

2014; Abdulhaleem, 2016).

Small businesses sector is split into enterprises that are

modern, resource based, and import dependent, and the

others that are informal and adopt simple technology

serving limited portion of the domestic markets(UNCTAD,

2001). Entrepreneurship in Yemen came as a helping hand

to the economy that had been reeling from political

instability. Numerous obstacles are faced by pet projects in

Yemen which require them a herculean conviction to survive

such conditions, which means that entrepreneurship in

Yemen is directed to fulfill the crucial needs more than being

the choice of business owners which also makes it the best

bet for overcoming the current social challenges in

Yemen(Hariharan, 2016).

Small and medium enterprises in Yemen function in a tough

business environment as one of the least developing

countries, and a tougher environment in light with the

current polio-economic unrest and instability. The

challenges became severe affecting the performance of SMEs

after the political instability that started in 2011 and got

violent in 2015. The effect of such temporary challenges

rendered the growth of enterprises in Yemen into a survival

strive.

Going through experiences such as double customs or double

tariffs upon imports, double taxation during the current

conflict between belligerent authorities(Nasser,& Osberg,

2018), and the repentance of sever electricity shortages,

security threats, economic uncertainty, and corruption have

been reported to affect small businesses more than medium

and large businesses(Stone, Badawy, & Assaf, 2012). Which

implies that the need for political and legal stability in

Yemen now is more than ever before, to provide appropriate

environment for businesses to function at first and to grow

and expand after that. The role of small and medium

enterprises in the development of economies is

unquestionably crucial. Their role is more crucial when it

comes to least developing countries. Therefore, urgent

solutions towards political and economic instability are a

must to minimize and contain the effect and deterioration of

the small business sector in Yemen in light with the current

condition and the performance of the economy.

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Review of Historical and Temporary Challenges Facing Small and Medium Enterprises in Yemen

Education

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